Finish 2011 on Target (Part 2)

Last Minute Solar Projects Need to Be Aware of Critical Treasury Department Guidance

Required Formal Disclaimer: Since this entry involves some discussion of legal principles, there is at least a theoretical possibility that one of you out there may read this blog entry and conclude that: (a) you and I have entered into an attorney client relationship; or (b) I am offering you specific legal advice for your specific legal situation. In the unlikely event you reach either conclusion, I must inform you that sadly, it is not true. Persons accessing this site are encouraged to seek independent counsel for advice regarding their individual legal issues.

In Part 1 of this topic, I discussed the Treasury Department’s guidance on whether the applicant for a Section 1603 Payment has “begun construction” in 2011. In Part 2, I will focus on Treasury guidance recently issued on how the Treasury Department evaluates Section 1603
applications for solar photovoltaic (aka PV or solar electric) projects.

Treasury Guidance Regarding Solar Electric costs

The Treasury Department recently published guidance titled “Evaluating Cost Basis for Solar Photovoltaic Properties” (referred to in this post as “The PV Cost Guidance”) indicating how it will evaluate the claimed cost basis for solar PV projects applications for Section 1603 payments to reimburse eligible costs of solar electric projects. The PV Cost Guidance establishes benchmarks for average costs per
watt for solar PV projects. The guidance includes the following table:

Residential

Residential/

Small Commercial

Commercial

Large Commercial/

Utility

Size Range

< 10 kW

10 – 100 kW

100 – 1000 kW

> 1 MW

Typical Size

5 kW

25 kW

250 kW

2 MW

Turnkey Price per W

+/- $7

+/- $6

+/- $5

+/- $4

The PV Cost Guidance indicates that solar electric projects whose claimed cost basis exceeds the benchmarks above will receive closer scrutiny. This doesn’t necessarily mean that costs above the benchmarks will be disqualified. However, there must be a good reason for applicants to exceed the benchmarks.

Finally, Treasury guidance discloses that Treasury views certain other types of situations, including related party transactions (i.e. where two parties in the project are related to one another) as deserving close scrutiny. Treasury’s concern is that if a transaction is not between two
parties negotiating it at arm’s length, the cost for which reimbursement is applied may be inflated. The Treasury guidance concludes by detailing the approaches that Treasury uses to determine fair market value of projects.

If you have specific questions about The PV Cost Guidance, you can go on to the Department of Treasury’s 1603 website to review it yourself. You are also welcome to email me with any questions or comments.